Make Easy Money Front-Running the ECB

They’re at it again! Central banks just can’t seem to kick the bad habit of throwing good money after bad, and the European Central Bank (ECB) just doubled down.

This week, the ECB upped the ante, by adding corporate bonds to its 80-billion-euro-per-month spending spree of asset purchases. In the process, adding to its bloated balance sheet that’s chock-full of shaky government bonds already.

At least the ECB is “diversifying” its portfolio in its latest, desperate attempt to engineer growth through targeted monetary “stimulus.” Will it work?

Survey says: Not likely!

Since early 2015, the ECB has gobbled up nearly 780 billion euros of: government bonds, asset-backed securities and covered bonds – and it’s not done yet.

The ECB has stepped up its spending spree. What does it have to show for it all? Not much.

What does the ECB have to show for all this stimulus? Paltry economic growth of just 1.6% over the past year and deflation as far as the eye can see.

In fact, by its own published estimates, the ECB now expects Eurozone growth to flat-line at 1.6% this year as well, and it just cut its own growth forecast for 2018.

Apparently this harsh reality has not curbed the ECB’s enthusiasm for throwing good money after bad!

The latest beneficiaries of the ECB spending spree are European corporate bonds. This week, the ECB bought up corporate bonds issued by Belgium-based Anheuser-Busch InBev, Spain’s Telefonica, plus Germany’s Siemens, and Volkswagen.

“The ECB is really rolling the dice with European taxpayers’ money.”

The ECB is really rolling the dice with European taxpayers’ money here, since VW is barely an investment-grade credit.

The only thing the ECB accomplishes is to further manipulate European financial markets. It’s no surprise that the bonds being targeted jump in price ahead of time, as European banks and brokers trade ahead of the ECB’s purchase orders, as reported by Bloomberg.

While the ECB might not get the economic growth it’s looking for, at least beleaguered European banks and brokers can make some easy money front-running the ECB. Perhaps this makes the beaten down iShares MSCI Europe Financials ETF (EUFN) a good buy candidate!

Good investing,

Mike Burnick

Other Developments of the Day

The U.S. is nowhere to be found on the list of the top 100 most-peaceful nations in the world. Almost, though. It ranks as 103rd. The Global Peace Index, which rates the relative peacefulness of 162 countries, ranked countries such as Cuba, Burkina Faso, Haiti and Bangladesh as “more peaceful” than the U.S. It ranked Iceland, Denmark, Austria, New Zealand, Portugal, Czech Republic, Switzerland, Canada, Japan and Slovenia at the top of the list. War-torn Syria was at the bottom. Here’s a link to the report.

Airbnb CEO and co-founder Brian Chesky said the company had no tolerance for racism after incidents of racial discrimination by hosts that led to online protests. He said the firm would spend months on a total revamp of its service, seeking to prevent discrimination, according to the San Francisco Chronicle. Airbnb is a peer-to-peer service, which allows hosts and guests connect through its website or app to book private lodging. It came under fire for allowing hosts to discriminate against minority guests. Some black guests have complained that hosts refused lodging requests, but accepted them if they reapplied using a white person’s photo, the paper reported.

George Soros expressed confidence that support for the U.K. to remain in the EU would rise ahead of the June 23 referendum, the Wall Street Journal said. “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,” Soros told the Journal. He added that the recent strength of the British pound was a sign that a Brexit was less likely. “I’m confident that as we get closer to the Brexit vote, the ‘remain’ camp is getting stronger,” he stated. “Markets are not always right, but in this case I agree with them.”

Are you shocked that the U.S. doesn’t rank in the top 100 of the most-peaceful nations? For those of you who have lived in the U.S. and abroad, what’s your take on “peacefulness.” Speaking of those outside the U.S., how do you in Britain and Europe see the Brexit vote turning out, now that we’re getting close to the Big Day on June 23? Share your views below.

The Money and Markets team

Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.

{29 comments }

SammiThursday, June 9, 2016 at 5:05 pm

It’s the only thing they (the ECB) knows to do…….really not much different than our FOMC’s great reluctance to increase rates.

This would lead one to believe that ALL the central bankers of the world have the feeling they (we) are hanging onto the edge, about to fall…..Since their see beyond the end of their nose is much better than ours, maybe we should take heed!!

Those “in-the-know have “cried wolf” so many times now that our sensitivity to the cry has become very dull.

GordonFriday, June 10, 2016 at 12:03 am

Yes the ones that are pushing to stay are pulling out all of the stops. The 4 horsemen of the Apocalypse waiting in the wings according to them. Its all a ploy by big business they are the only gainers. The common man never wins anything anymore but physical and mental abuse. I am retired but I often wonder how the common man can muster enough energy to get out of bed and go to work on a daily basis. When I was working as a letter carrier work was fun.

James MannThursday, June 9, 2016 at 5:06 pm

how to buy growth stocks ?

GordonFriday, June 10, 2016 at 12:08 am

Hey James what is growing in stocks. I just read one analyst story that the figures are so fudged by GAAP earnings or whatever its called she feels she should go back to school to understand all the trickery and lies that barely border on legal. There are rumblings that the SEC will be sending out warning letters to companies using these deceptive practices.

ThomasThursday, June 9, 2016 at 5:16 pm

George Soros has got it right!! He confirmed that: “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,” The truth is that it is the EU that needs Brittan, much more than it is Brittan that needs the EU!! Why all the lies from the British Establishment?? Shame on them!!

GordonFriday, June 10, 2016 at 12:12 am

Yes Thomas the sky is falling group is pulling out all the stops. Sadly the average working Joe is to busy to be able to step back and see the big picture. They will in the end vote stay and stay within the bounds of the security they know. Its called the huddled masses syndrome.

JoeThursday, June 9, 2016 at 5:22 pm

We need Unrest badly, good for business.money bags

ToddThursday, June 9, 2016 at 5:33 pm

I do not find it surprising at all that the U.S. does not rank in the top 100 peace-loving nations. Whether or not we remain a beacon of freedom, democracy, and promise, it’s undeniable that we have been at war since 2003 – and in our 239-year history, we have been at war in 222 of those years (better than 9 out of 10).

Of more concern to me than the numbers regarding this issue s a more qualitative factor. I recall commentator Warren Pollock some years ago noting that there are three factors that are essential for a nation to remain vigorous – a strong productive capacity, a strong defense (authentic defense, vs. military adventurism), and abundant natural resources. Warren observed that the U.S. now basically has one of those three characteristics, which is not terrific for our long-term future unless we change course.

JoelThursday, June 9, 2016 at 5:58 pm

Hey Mike,
Ike Eisenhower warned us about the Industrial Military Complex in 1961. He recognized the risk long before others
I was born 10 days after Hitler committed suicide and since that time we have been at war for more years than we have been at peace. When I move on, I hope that I will be able….to rest in peace.
Joel

Chuck BurtonThursday, June 9, 2016 at 7:00 pm

The U.S. has been at war in Iraq, Afghanistan, and now Syria, pretty constantly for the last 15 years, with excursions elsewhere, also. Has any other nation has such a miserable militaristic record recently? Even Japan, from its involvement in China in the early 1930s, to the end of World War II, wasn’t fighting as long as that.

JimThursday, June 9, 2016 at 7:22 pm

These are just the ones we know about. With military assets in over one hundred countries you can bet there is plenty of clandestine activity on our part as well. A British commentator recently pointed out our basic strategic error. When you declare war against something ( terrorism) that is caused by war there is no end game. It also would appear that winning hasn’t had a very high priority. Jim

RichardThursday, June 9, 2016 at 6:16 pm

Peaceful areas in American cities are becoming rare.

Chuck BurtonThursday, June 9, 2016 at 6:50 pm

My understanding of the EU bond binge, is that, while the banks are supposed to by highly rated bonds, they are including funds that contain some percentage of junk also. So the central banks will be exposed to the collapse of junk companies, just like individual investors. That can’t be good.

RichardThursday, June 9, 2016 at 6:54 pm

I think the Politicians and financial wizards have not got the underlying contempt that the average working man in the UK has for Europe, The EU spends cash on the most idiotic things that you could not imagine in your worst nightmare, The fat cats in Brussels are going to come down with a huge bump, The UK does not need to keep pouring millions of pounds into Europe so we can belong to it’s club, What could be more simple than you want something from us we sell it to you, and vice versa, why do we need trade agreements and endless red tape to make a simple buy or sell, When the European Union stop building roads all over Europe that just go to no where, When France can go a whole week with out a strike, When Italy puts their hands up and admits they are in a big mess, And Mrs Merkel stops moaning about all the countries that owe money to German banks, When they finally sort out all the corruption and tax avoidance, Then it might be OK for the UK to stay in, So for now let the UK leave untill the EU has put it’s house in order, I nearly forgot the last one to leave put the lights out in the channel tunnel

VinmanThursday, June 9, 2016 at 7:30 pm

Historically Britain has always had a policy of a divided Europe but after two great World Wars they probably figured Europe could avoid future conflicts if they united peacefully . So the Question is could Europe break up back into its nation states and remain peaceful ???

DaiSunday, June 12, 2016 at 6:53 am

Mutual economic prosperity assures peacefull coexistence. Political and bureaucratic Union is not a prerequisite for a free trade agreement. The Common Market was fine. It should have been left at that!

paulThursday, June 9, 2016 at 7:30 pm

More citizens die from the police than in war at this time. Who protects us from the law enforcement. They are taking money and land without due process.

DamienThursday, June 9, 2016 at 8:08 pm

As long as European Union place insane people like mario draghi in places of any responsibility, then Britain should not be part of Europe. It’s clearly an abuse of his human rights by denying him the mental health support he, and others, so desperately need. Soros, if genuinely concerned for Europe should be made aware of the loony fruit-loops (probably suffering from delusions of grandeur, poor buggers) that are unable to help themselves, or anyone else for that matter…and cover the cost of locking them up in a nice soft white room for their own safety, you understand?
Damn, France is more peaceful than uk…

Mike ClancyFriday, June 10, 2016 at 6:43 am

Mike,

The ECB is now buying corporate debt instruments which drives up the prices of those same instrument, and in turn drives down the interest rate of the dividends cast off by those debt instruments. Their objective of gobbling up so many different types of debt instruments is simple … flawed, but very simple, and that is to drive income seeking investors into riskier equity based investments in an attempt to pull in some income. This is especially targeted at the older investor, but will end badly for all that are drawn into this scheme. Their objective? They want as many people separated from their personal assets as possible, which will happen when the upcoming bubble pops happen worldwide. What will that cause? It will cause even more people to rely on governments for their very existence.

Nothing happens by accident. We (read many) may not see what the cause was that created the effect, but nonetheless there was/all will be a cause.

People need to find ways to get out of the way of this upcoming train wreck, or they will get wiped out.

BrexitFriday, June 10, 2016 at 7:39 am

We’re coming out of the EU and it’s already disastrously finished any way. There’s no need to get complicated over such a simple inevitability!

BrexitFriday, June 10, 2016 at 7:46 am

It’s going to be best to avoid the impending EU car crash!

VinmanFriday, June 10, 2016 at 6:17 pm

Brexit

Your right Britian will be better off having her Sovereignty which is extremely important when it comes to the rule of law and national identity

cjmcdFriday, June 10, 2016 at 11:11 am

America is so dangerous no one wants to come here to live.

Mike HunsakerFriday, June 10, 2016 at 5:10 pm

We should not forget that central bankers and national leaders represent a narrow group of special interests who are most interested in their own prosperity – not others. They are also a classic case of people who have a hammer and only see problems as nails.
They are very disconnected from reality and somewhat arrogant and corrupt. They see nothing wrong in rigging the systems to benefit themselves and interests – multinational corporations, large labor unions and particularly Big Government on which they depend. Deteriorating conditions are simply not as important to them as their own well-being. Brexit and the Trump/Sanders candidacies are simply popular dissatisfaction to paying the bills and getting nothing back. And the elites are fighting hard to maintain the gravy train no matter how destructive their policies.
Buying corporate bonds is also symptomatic of national level corruption. Who picks which corporations get the benefit of an expanding grab bag of crony capitalists?

Mitzi MascioFriday, June 10, 2016 at 10:19 pm

And to think I was just ready to buy corporate bonds today before the Brits so I could get a measly 3% what to do now, as they will ruin this little gravy train also.

JamesSaturday, June 11, 2016 at 12:25 am

Richard theirs such a thing as the law of comparative advantage. A country has to trade with Europe if it’s in Europe. The problem is the Universities are being bribed by Fat Cats to allow them do post graduate study rather than Work. Boarding Schools should be outlawed. Everybody knows that Universities engage in grade inflation.

rabbitSaturday, June 11, 2016 at 3:39 am

What does it profit a man to gain the world only to lose its soul. This is what’s become of special intrests, it apply to money as well. The great thinkers so called economic geniuses keyes in peticular., central banks have ruined real money prefering fiat money that corrupted the system. Real money relies on pressure of compeating currencys in a competitive market.backed by sound reserves. All the regulation and minipulation has strangled the value of currency,along with special interests monopolies and monetary controls that favor banks and governments. Installing one currency to prop up central controls has put the whole currancy and countries at risk. It may work for growing economies until phisics kicks in. Robbing the source of real money , the sweat and toil of labor.the addiction to the quick money patch will insure its demise.

John ArmestoSaturday, June 11, 2016 at 6:45 am

I think the middle class all over the world has had enough ivy league manipulation and will mean a Brexit on June 23.

DaiSunday, June 12, 2016 at 7:22 am

What confounds and confuses the hell out of me is the presumption that GBP will collapse on a Brexit “leave” vote.
When Britain entered the EU (1973) cable traded at $2.40 while the EUA, the precursor to the ECU and the Euro….all rolled over at par, traded at $1.04. That’s a cross of EUR/GBP 0.4333. Now there has been convergence of per capita GBP between Britain and the rest of ERope since then and the financial distress of 2008/9 brought a high of 0.97 ish for the Euro. Since then cable has been gradually recovering in a perfect down channel. The top of which would be .8120ish. We are currently a hair away at .78832.
Recent trade figures for the UK have beaten expectations, particularly in the non EU component.
What sort of perverse logic leads financial pundits to propose that exiting the EU would be so devastating to GBP and the U.K. Economy? The EU experiment has already been a disaster for the currency. They also add that the UK would see an asset crash! How can the two coexist? A depreciating currency and a depreciating asset base? Hardly. I think the currency projections are wrong because UK asset prices compare quite favourably with the other European leaders. Unless this is an investment banking ” bait and switch ” my guess is that we see Sterling improve on any outcome of the Brexit vote. The negative in this is for the EUR.